Alt Lending – week ending 14th August


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Here is our pick of the 3 most important Alt Lending news stories during the week:

  1. Robinhood traders are going to get their fingers burnt

Why this matters: While this is primarily all about equities and the meteoric rise of the Robinhood trading platform it does touch on the rather avant garde financial activities of distressed giant Eastman Kodak. This weeks story concerns a $ 725million US government loan to EK which the company have obtained to finance the production of generic pharmaceutical ingredients for the production of drugs to treat COVID 19 including hydroxychloroquine. When news of this broke EK shares improved by 1200% however days later when subsequent news alleged that the government was blocking the deal they immediately fell by 40%. Such things do happen in these febrile times but Robinhood attracts young and inexperienced traders, quite a lot of whom have pockets full of government stimulus checks,  to its platform which exacerbates the problems caused. However some of you will remember EK’s rather oblique attempt to enter the world of Blockchain through its ICO (Initial Coin Offering). Undoubtedly this offering was severely flawed and when dealing in new instruments doing your homework is an essential component of the groundwork. Nevertheless I quite like the concept of Coin offerings in principle. They are potentially a very good way of funding projects through ALT lending at the upper end of the market.  To my mind two problems exist. Firstly there is not exchange for these instruments to encourage market making and liquidity and secondly the information conduits required to monitor progress need to be a lot better than they are currently. This is where technology needs to be focussed. In the meantime the answer might be keeping the whole thing simple. Charles Street Securities has done just that by offering a PGX coin backed by Gold in the ground at a significant discount to the current gold price.

2. Amex Poised to buy Kabbage

Why this matters: Hot off the press another piece on consolidation in the US. This time AMEX has announced that it is in advanced discussions to take over Digital Small Business Lender Kabbage in an all cash deal of around $ 850 million. The deal is being compared with last months deal which consolidated Enova and OnDeck capital last month. What is interesting is the lack of meaningful understanding as to what has driven both of these transactions although the mood music in the press releases has all been highly positive. However the American Banker’s report pointed out that neither Amex or Kabbage wanted to comment on the talks. Of course the talks are ongoing and the whole deal could fall apart but I do not understand the reticence for comment. As I mentioned in last weeks commentary the whole worldwide sector for Alt lending is ripe for consolidation and the underlying reasons for link ups in the current environment are complex. The driving factors are many and varied and technological excellence is only one of them.

3. Revolut losses Triple as Revenue’s expand.

Why this matters:The plethora of digital banking start ups continues apace and the familiar rhetoric follows as night follows day. In Revolut’s case the message is simple –  we are acquiring clients at a rate of knots and our losses are only caused by  client acquisition costs. In Revolut’s case revenues grew to £ 163 million but unfortunately the costs of pushing into new markets including the US meant that costs grew to £ 269 million leaving a £ 106 million loss. Competitor Monzo last month said that it did not know if it could continue as a going concern. Starling Bank on the other hand indicated that it could reach break even by year end. Revolut on the other hand stated somewhat cryptically that there was a reasonable expectation that the company could continue operating for the foreseeable future. So that’s OK then. Despite the unprecedented downturn caused by COVID19 the deviation from optimism to pessimism is extraordinary. It reminds me of the days of the early 90’s. At that time I remember receiving a letter from a very large Investment Bank valuing the company of which I was a director at $ 2 billion on a turnover of less that $ 10 million. There are going to be big winners and big losers in this game. You pays your money and you take your choice. However In the final analysis it will be money not technology that decides who gets what.

Howard Tolman is a well-known banker, technologist and entrepreneur in London,

We have a self imposed constraint of 3 news stories per week because we serve busy senior Fintech leaders who just want succinct and important information.

For context on Alt Lending please read the Interview with Howard Tolman about the future of Alt Lending and read articles tagged Alt Lending in our archives.

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